What should be your most important expense this year?

Scott Hannah explains that developing a savings mindset is key to being able to retire early.Ryan Remiorz / THE CANADIAN PRESS

Q: My older brother turned 54 years old last week and to celebrate, he gave himself the gift of early retirement. I was stunned, and jealous, that he could pull that off. I’m in my mid-forties and I can’t imagine how he did it. I’ll be lucky to retire at 70 at the rate I’m going. He and his family don’t look like they’re living life on a shoestring; they take annual trips, the kids are in sports, and it’s not unusual that we all go for dinner or take in a show. I have tried to ask him about it but he’s always so modest. I do know that he and his wife paid off their mortgage a few months ago and he does have a solid pension that he was smart enough to sign up for when he started work at 19. What am I doing wrong? ~Jason

A: What sets people like your brother apart from the crowd is having a savings mindset. This doesn’t mean living as frugally as possible all the time. What it does mean, however, is consistently making choices that keep your current spending well below your means. By living on less than you earn you’re able to set money aside for spending later. That’s the way to make savings happen.

The difficulty many people encounter is that when the notion of saving for later arises, they’re already enjoying a lifestyle of living at or above their means. Dialing back their spending, expenses and commitments to below their income can be a rough adjustment. It is however, a necessary one if saving for your future is to become a reality.

When you’ve got money saved to pay for what you need, it becomes possible to think about reducing your income. You call the shots and decide when you can afford to retire, if you can take a job you really want for less income, if you’re going to travel, help family or try your hand at the stock market. It’s your money and you get to choose.

Protects against debt

Savings provides the money you need to pay for unexpected expenses, e.g. a car repair bill or property tax increase. Without cash on hand, most people pay unexpected bills and expenses with credit. Then with the interest you must pay when you borrow money, it takes that much longer to get ahead with savings. Savings truly is the secret weapon against debt.

Increases your sense of well-being

Stress from money worries is real and significant, yet often underestimated by doctors and laypeople alike. Knowing that you can provide for yourself and your family without depending on a steady pay cheque, government pensions or assistance, or loans from your financial institution is powerful.

To get a sense of what financial freedom would feel like, open a separate savings account and set a goal to deposit to it regularly for a period of six months. The easiest way to do this it to set up an automatic transfer whenever you get paid. Pick an amount that you can afford to do without, at least temporarily. You will be surprised how quickly the money that’s out-of-sight, out-of-mind adds up!

At the end of your trial period, contemplate all the things you can do with the money. Some smaller ideas could be going out for dinner with a friend or buying concert tickets. If you have a larger sum saved, you could spend it on paying a bill you thought you couldn’t afford, a weekend get-away or hosting an event for your family. As you contemplate your options, keep in mind how you feel; then look for ways to recreate these feelings on a larger scale over the long term, e.g. by working towards paying off your debts or even your mortgage.

Making deliberate choices and decisions is the difference between freedom 55 or 65 and the retire in debt plan. Saving money is an active choice; it doesn’t amount to the same results if it’s a passive after-thought in your budget. The next time you think about your bills, expenses and obligations, factor savings into your budget as an expense category and pay yourself first. Regardless of how you save or what kind of account you put your saved money into, make the choice to give yourself money to spend later. It’s a habit you won’t be sorry you started.

Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott byemail, checkwww.nomoredebts.orgor call 1-888-527-8999.

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